Assignment
1. During 2016 a regional supplier of ice cream experimented with price levels at its numerous retail shops to determine the price elasticity of its key product lines. The following table depicts prices and quantities of demand for a single dip of premium ice cream across all of its shops from January 1, 2015 to June 30, 2015 and from July 1 to December 31, 2015. Answer the following questions in regard to these prices and quantities:
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Ice Cream Price Elasticities
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Quantity Demanded Single-Dip @ $2.50 Per Dip for January 1 to June 30, 2015
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Quantity Demanded Single-Dip @ $3.00 Per Dip for July 1 to December 30, 2015
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6 Months of Sales
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600,000 Cones/Cups
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575,000 Cones/Cups
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a. Using the Midpoints Formula, determine the coefficient of price elasticity for the firm's premium ice cream.
b. Are there certain seasonal differences in demand for ice cream that could taint the price elasticity analysis? Explain.
c. Is there potential for a tainted study because of changes in external variables over the course of the year? For example, its major competitor won a national award for the best regional ice cream value.
2. The following article "Disney is demonstrating what 'pricing power' is all about at its Magic Kingdom" by ELENA HOLODNY, depicts some pricing and attendance information at the Magic Kingdom at Walt Disney World in Orlando, Florida. Examine the article and its graphs to address the following questions:
a. What can one conclude about the price elasticity of the Magic Kingdom? Is it likely price elastic or price inelastic? Explain the rationale for your response.
b. Define the term "pricing power" and articulate how Disney is using its pricing power to its benefit.
c. Does the graph over the 2008 to 2014 period infer that there were other factors, such as the economy and not necessarily price,which were driving attendance figures at the Magic Kingdom? Explain.
3. A large city in the Eastern US is plagued with higher and higher rents. The average rent in the largest rental neighborhood is $2,000 per month. This neighborhood largely serves new residents to the city, mostly immigrants. Most of these residents cannot afford these rents, so the local government has determined that it will initiate a "price ceiling" or "rent control ceiling" at $1500. In other words, there are to be no rents above $1500 in this neighborhood. Given this information, answer the following questions:
a. Explain the likely market effects of this rent control strategy, using illustrative supply and demand curves with the numbers mentioned above.
b. Do you anticipate a surplus or shortage of rental housing in this neighborhood? Explain your response.
c. Longer term, will landlords be motivated to maintain quality housing in this neighborhood?
d. What may happen to the quality of the entire neighborhood over the long term if rent control is maintained for years to come? Explain.
4. Recently, the Governor of California signed a bill that would raise the minimum wage to $15.00 per hour by the year 2022. The following article depicts the new law: California, New York pass $15 minimum-wage laws by ERIC MORATH, ERICA ORDEN and ALEJANDRO LAZO.
a. Demonstrate with an illustrative graph (no numbers) the likely impacts on supply, demand, and availability of labor in the California marketplace.
b. Demonstrate what will likely happen to the supply curve for employers of minimum-wage workers, such as fast-food and agricultural firms.
c. Explain what the affected employers might do to address the likely higher costs for producing fast food, agricultural products, and retail services.
5. Subsequent to their price elasticity study, the ice cream company cited in Question #1 was recently named as the best regional ice cream producer in the country. Ice cream connoisseurs all over the country have been seeking out the brand via Amazon and other online retailers. Answer the following questions related to the principle of consumer surplus.
a. Explain the impact of the above occurrences on both the demand curve and consumer surplus. Is the consumer surplus increasing or decreasing? Present the information with illustrative supply and demand curves on a graph (no numbers).
b. What will likely happen to the pricing power of the ice cream firm given this notoriety as the best regional ice cream?
c. Over time, what may happen in this regional ice cream market given these developments?
6. Explain the concept of a market externality. Cite two examples of market externalities and how they create societal costs that are not necessarily captured in their respective transaction costs.
7. A rapidly-growing fast-casual restaurant serving a regional market in the Ohio and Indiana markets was concerned about meeting demand for its burritos and burrito bowls during peak lunch hours. Therefore, the firm added a series of workers in a pilot test in their busiest shop in western Ohio. The shop added more and more workers trying to find their most efficient production point given additional workers. The following table depicts their production capabilities between their critical hours of 11:00 a.m. and 2:00 p.m. Note there have been no changes to the equipment or to the physical plant of the shop; only the number workers has changed.
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Number of Part-Time Workers Added
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Additional No. of Burritos During 3 Hours
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1
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20
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2
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36
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3
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46
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4
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50
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5
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48
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6
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40
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7
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28
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a. Graph the performance of the workers using Excel; connect the points on the graph with a line or curve.
b. What principle of economics has the firm encountered in its pilot test of adding workers attempting to meet peak lunch demand?
c. Will this principle have any effect on the costs of the firm at some point? Please explain the relationship between costs and production changes displayed in the graph.
8. A manufacturer of base units for home sensor protection (security, water, carbon monoxide, etc.) produces these units in a small facility in northern Indiana. The firm's engineer has set up "assembly cells" in the facility that she believes will be the most efficient means of producing the units. The following table displays the various costs per hour for producing the units.
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Output Per Hour
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Total Cost
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Fixed Cost
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Variable Cost
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Avg. Total Cost
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Avg. Fixed Cost
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Avg. Variable Cost
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Marginal Cost
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0
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$ 100.00
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$ 100.00
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$ 30.00
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1
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$ 130.00
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$ 100.00
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$ 30.00
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$ 130.00
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$ 100.00
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$ 30.00
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$ 28.00
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2
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$ 158.00
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$ 100.00
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$ 58.00
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$ 79.00
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$ 50.00
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$ 29.00
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$ 25.00
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3
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$ 183.00
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$ 100.00
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$ 83.00
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$ 61.00
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$ 33.33
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$ 27.67
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$ 21.00
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4
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$ 204.00
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$ 100.00
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$ 104.00
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$ 51.00
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$ 25.00
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$ 26.00
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$ 18.00
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5
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$ 222.00
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$ 100.00
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$ 122.00
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$ 44.40
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$ 20.00
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$ 24.40
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$ 20.00
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6
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$ 242.00
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$ 100.00
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$ 142.00
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$ 40.33
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$ 16.67
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$ 23.67
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$ 23.00
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7
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$ 265.00
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$ 100.00
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$ 165.00
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$ 37.86
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$ 14.29
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$ 23.57
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$ 30.00
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8
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$ 295.00
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$ 100.00
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$ 195.00
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$ 36.88
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$ 12.50
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$ 24.38
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$ 38.00
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9
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$ 333.00
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$ 100.00
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$ 233.00
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$ 37.00
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$ 11.11
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$ 25.89
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$ 40.00
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10
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$ 373.00
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$ 100.00
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$ 273.00
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$ 37.30
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$ 10.00
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$ 27.30
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a. Explain why Average Total Costs (ATC) declines through the production quantities. Only with the tenth unit per hour does the firm see a minor increase in ATC.
b. Explain why Average Fixed Cost (AFC) declines across all levels of production. What do you call this phenomenon?
c. Explain why Marginal Costs initially decline but then increase with the sixth unit of production. Which short run production principle is at work here in creating this pattern of Marginal Costs?
Attachment:- Excel-Template.rar